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Penalty
Year Deficiency Sec. 6662(a)1
1994 $26,835 $5,367
1995 26,387 5,277
Respondent determined income tax deficiencies and penalties
for petitioner J&J Management Group, Inc. (J&J), docket No.
3210-99, as follows:
Penalty
Year Deficiency Sec. 6662(a)1
1994 $3,402 $680
1995 31,913 6,383
1 Respondent has conceded that petitioners are not liable
for sec. 6662(a) penalties for the 1994 or 1995 taxable year.
Respondent concedes that the Shedds did not receive constructive
dividends for 1994.
Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the taxable periods under
consideration, and all Rule references are to the Tax Court Rules
of Practice and Procedure.
The primary issue for our consideration is whether advances
from J&J to TLC Management, Inc. (TLC), were business loans or
contributions to capital. If we decide that they were business
loans, we must then decide whether J&J is entitled to a bad debt
deduction under section 166. If we find that the advances were
contributions to capital, we must then decide whether the
advances should be treated as constructive dividends from J&J to
the Shedds, in light of Mr. Shedd’s ownership of stock in both
J&J and TLC.
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